Thought leadership from our experts

Competition Law Disrupted

Introduction

Competition Law is one area of law that sees constant evolution in the subject matters that it is applied to. It is not a static area of the law, but one which is tied so closely to the way businesses operate. With the constant evolution in the way business is undertaken, regardless of the nature of the industry, product or service, there is a constant review of what the relevant market definitions are, as well as the relative market positioning of the parties and then ascertaining whether there has been competition harm and how to manage that. To this end, preventive measures are a common tool that all competition practitioners utlise.

What is particularly poignant is that the digitalisation of business has brought on greater challenges, even as market definitions become more complex, just given the fact that the products and services on offering sometimes simply defy definition within a box. As noted by Minister for Trade and Industry, My Lim Hng Kiang, "The rapid advancement of technology today blurs the lines between our physical spaces and digital experiences, with unprecedented speed, scale and scope. This has caused disruptions to many markets across various sectors, but the impact of such disruptions are not necessarily negative". Such disruptions simply make the competition lawyers role more complex, but also very exciting, as competition regulators also seek to grapple with such difficult issues. Indeed Minister Lim noted that "Competition authorities and sectorial regulators must move with the times to be perceptive, anticipative, and adaptive. Policies and practices must be "future-ready" to ensure that they do not become a stumbling block to innovative new entrants".

This short article reviews steps that have been taken and will continue to be taken to educate and concurrently manage the changing nature of business so that no competition harm surfaces.

The Journey In Singapore

The ICN Annual Conference In Singapore

In 2016, the CCS hosted the 15th annual conference of the ICN, which saw more than 500 participants from over 80 jurisdictions. During the ICN conference, the ICN special project team 2016 from the CCS presented a report titled Government Advocacy and Disruptive Innovations ("report"). The report presented survey results based on responses received from ICN members on their perspectives on disruptive innovation and government advocacy experiences in relation to the same (one of the themes of the ICN conference). Disruptive innovation is a term coined by Prof Clayton M Christensen of Harvard Business School in his book, The Innovator's Dilemma: The Revolutionary Book That Will Change the Way You Do Business (Harper Business, 2011), and is used to describe innovation that creates new markets by finding new types of customers, partly through the use of modern technology and partly through devising new business models and exploiting old technology in novel ways.

The report identified three key challenges in disruptive innovation-related government advocacy efforts. First, government agencies may not regularly assess the effects of their proposed policies on competition. Hence, they should be made aware of the importance of competition and keep it in mind throughout the policy-making process. Second, there are insufficient information and studies on disruptive innovation to provide evidential support for advocacy efforts. The current practice is to obtain such information through enforcement work, market studies, and collaborations with government agencies. Lastly, government agencies and competition authorities face political pressures over disruptive innovation, which could lead to defensive behaviour from incumbents. Therefore, advocacy must be targeted at key decision-makers in order to be effective.

The Investigations In Relation To E-Commerce

At a Competition Law Conference titled Dealing with Disruptive Innovation and Big Data in the New Economy, held on 16 August 2017 by the CCS and the Singapore Academy of Law, it was noted that "[t]he significance of the digital economy has a pervasive impact on all sectors of the economy – from taxi services to food services and financial industry". This is indeed true and is reflected by several recent investigations undertaken by the CCS, one of which resulted in an infringement decision being issued.

In the first, an Infringement Decision issued on 17 March 2016, the CCS held that a total of ten financial advisers (collectively the "Parties"), including IPP, infringed Section 34 of the Competition Act 2004 by participating in an anti-competitive agreement which had the object of pressurising their competitor, iFAST Financial Pte. Ltd. ("iFAST") into withdrawing its offer of a 50% commission rebate to policyholders on its life insurance products on the Fundsupermart website ("the Fundsupermart Offer"). Evidence gathered by the CCS revealed that the Parties participated in a meeting on 2 May 2013, during which several of them expressed concerns with the Fundsupermart Offer, as iFast had entered into direct competition with them, disrupting the financial advisory industry on life insurance. The Fundsupermart Offer was intended to be marketed permanently but on 3 May 2013, just three days after its launch, iFast limited it to one month. Later in the same day, the Fundsupermart Offer was completely withdrawn with immediate effect, in response to the collective pressure exerted by the Parties on iFast.

The view expressed by the CCS was that the markets never returned to what it could have been if not for iFast pulling out of the market. The case is complex and the views many. The lesson point is that a changing approach to offering services can be daunting to businesses; but caution must be exercised as to how that new entrant is dealt with, and avoid competition detriment to the market.

In the second, acting on complaints, the CCS investigated an online food delivery provider for alleged abuse of dominance. The press release issued by the CCS noted that the "investigation revealed that the online delivery food provider had entered into exclusive agreements with certain restaurants, which prevented the restaurants from using other providers' services". Despite these exclusive arrangements, the CCS eventually closed its investigation into the matter as it accepted submissions from the provider that competition had not been harmed in the online food-delivery market. In fact, the market had become more competitive in recent years with the entry and expansion of players such as Deliveroo, Foodpanda, Gourmet To Go, and UberEats. However, the CCS indicated that it would continue to monitor the market, because such exclusive agreements may become problematic in the future. While competition law does not prohibit businesses from acquiring market power, such power may not be used to prevent competitors from entering or expanding in the market. In order to mitigate the risk of infringing competition law, the CCS encouraged businesses to compete based on merits rather than rely on exclusive agreements to gain market shares.

Each of the two cases reveal that the issues are not simple. Where a competition regulator moves too quickly, it could potentially harm the particular business being investigated; and yet move too slowly, and the competition harm in the market could become irreversible. This is a dilemma for competition regulators, but certainly more so for competition lawyers. More complex cases do, of course, exists across the world, and whilst various decisions have been issued from time to time, they remain difficult to manage.

The Continued Revolution

There have been several instances where the existence of technology has enabled new businesses to flourish. The taxi arena is one where the likes of Uber and Grabtaxi have substantially disrupted the industry in Singapore. Indeed, there are plans for a trial for on-demand public buses to be introduced in Singapore as well. Traditional bike-renting companies are facing severe competition from the likes of O'Bikes and Mo-bikes, who have introduced the ability for individuals to rent bikes almost on the go, without having to go to a physical shop to rent and return a bicycle.

Even as new technologies disrupt traditional business ventures, insofar as a competition regulator is concerned, one would strongly urge the continued use of ex-post tools to manage any perceived competition harm and not switch to ex-ante tools, which are typically available to sectoral regulators. This is to ensure that the competition regulator does not stifle innovation and hinder market forces from working as they should. In this new world economy, there have been many examples where Singapore has generally allowed disruptors and start-ups to enter the market, except for health and safety reasons. These have generally resulted in increased competition and prompted the incumbents to respond with more competitive offerings, and have also led to more choices for consumers. The Government has generally only stepped in later where required and in a targeted fashion.

A question may be asked as to how a competition regulator should manage mergers that occur in this new world. It is noted that for mergers, a more forward looking approach may need to be taken in assessing the counterfactual and how the competitive situation would differ if the start-up were to continue to operate independently. Therefore, the competition authority cannot simply focus on the existing market shares of the start-up when assessing the competitive effects of the merger. That said, it can be difficult to predict the growth trajectory or the eventual success of the start-up. Hence, yet again, it is highly recommended that a reticent approach be taken and allow the merger to proceed, watching from afar and if necessary take action for an abuse of dominant in time to come if the merged entity were to abuse its dominant position subsequently to foreclose the market.

Conclusion

Competition lawyers have the opportunity to ride an exciting new era where businesses evolve and grow and change alongside technologies that seemingly morph so very frequently, creating a web of a complex dynamic modern regulatory and compliance environment, and hence, constantly require advice. Where such businesses adopting the technology are not carefully watched and managed, they could leave irreparable harm on competition.

As a final word, note that in any business environment, where disruption is the name of the game, it is not about the competition law concerns that have to be dealt with. Exports controls, sanctions and other aspects of international trade is another key area that is relevant. As products and services are bought and sold across jurisdictions, particularly through ecommerce and technology, local law requirements which could differ from one country to another, open a conundrum of concerns for the lawyer who manages trade concerns. All said, lawyers do need to ensure proper governance processes are put in place to manage the new world order that has evolved, and change is the name of the day.